Bank Indonesia has announced its stance on bank ownership in the country and issued requirements it expects prospective bank owners to adhere to. We welcome this move as it will inject clarity and confidence into the sector.
BI will create three categories of ownership: 40 percent, 30 percent and 20 percent. Deputy governor Halim Alamsyah said exceptions would be permitted which would allow some investors to own more than 40 percent and as much as 90 percent.
To be able to own more than 40 percent, owners will be subject to BI’s close scrutiny as the central bank will determine how the bank is managed, if the owner is capable of running the bank and whether there are benefits to the economy.
We applaud the central bank’s prudent but pragmatic approach. Indonesia’s banking sector still requires injection of new capital if domestic banks are to grow and compete regionally with their counterparts in Singapore, Malaysia and Thailand.
Even though the banking sector has grown rapidly in the past few years, only four domestic lenders are on the Top 20 list of Asean banks. According to BI data as of Dec. 31, the top two Asean banks are from Singapore while Malaysian banks occupy the next three positions. Indonesia’s largest bank, Bank Mandiri, was ninth, while Bank Rakyat Indonesia was 11th. This shows that local banks must improve their operating efficiency.
A strong and robust banking sector is vital to the growth of the economy. Banks are the main intermediaries that channel capital to productive use. Better capitalized banks are able to issue larger loans, needed for infrastructure and other projects.
On the consumer side, domestic banks have started to promote housing and other personal loans in recent years. New capital and expertise can only be good for the continued growth of the banking sector.